Wednesday, October 31, 2007

Decoupled Debit May Provide PBT a Date with Banks

Food For Thought...

Decoupled Debit takes the Financial Institution out of the Interchange Pie. This disruptive technology could potentially "disrupt" the long standing relationship (what a cute couple, oop's they've been decoupled) between the banks and Visa/MC. For every action, their is a reaction or "a priori...a posteriori"

So, this might be an opportune time to "start courting" the banks in earnest. Let's make a date of it. If the financial institution feels the threat of getting cut out, they'll be more willing to listen to a program that cuts them back in. (yes, there are "a couple" analogies)

Pay By Touch would certainly like to develop more banking relationships, and they could easily implement a plan that provides a slice of their transaction rate pie back to the bank where the consumer has their DDA. (Demand Deposit Account...A standard checking or savings account into which electronic funds can be transferred.) Using an S&H GreenPoints derivative for a debit reward program would seem to make some sense here as well.

So let's wine 'em and dine 'em and make it more than just food for thought.

Mercator Advisory Group has announced a new report titled "Decoupled Debit - Let's Take a Closer Look" that the company says "evaluates the recent emergence of this new and possibly disruptive technology in the financial services industry, decoupled debit.

Decoupled debit is an alternative based ACH debit card solution that utilizes two existing systems that are well defined in the financial services industry but were not designed to work in combination with each other, the ACH network and the branded payment networks such as MasterCard, Visa, NYCE, etc."

Intermediate service providers use the "man in the middle" approach to switch the consumer from their bank issued debit card to a debit card issued by the intermediate service provider effectively decoupling the consumer DDA from the FI debit card. The consumer's card transaction is performed and settled online over the branded payment networks between the merchant and the intermediate service provider but is settled with the consumer's FI using the offline ACH network.

The "decoupling" of the consumer funding DDA and traditional FI card issuer allows the intermediate service provider to capture the interchange income from the card transactions which, in the traditional model, would normally go to the FI. A decoupled environment is shown graphically in the attached figure.

The decoupling of the card issuance and the account holder does not come without added risk. New risks such as account validation, which have not been inherent in the aforementioned payment systems, must be managed with a whole new approach. The decoupled debit platform also requires a great deal of heavy lifting to implement. But thanks to Tempo Payments, (formerly known as DebitMan) who has recently unbundled their proprietary decoupled debit platform, there may be more players in the market sooner than later.

Patty Hayward, Senior Analyst of the Debit Advisory Service for Mercator Advisory Group and the author of the report recognizes the impact decoupled debit may have in the industry: "The fear of the unknown is palpable in the financial services industry with the uncertainty of how the decoupled debit platform will affect the competitive balance of interchange and consumer loyalty within today's traditional debit card model. There are two options FI's can pursue to protect themselves from this potential disruptive technology."

The report reviews a number of decoupled debit products that are available in the market today which have traditionally focused on the merchant, reducing interchange costs and enhancing consumer rewards. The decoupled debit concept is not new to this market; and it hasn't been accepted because of inherent challenges in the system. Consumer adoption and data collection are two key elements to any product's success and has been a difficult problem to overcome in the decoupled debit products to date. Unlike the Pay-by-Touch or Tempo Payments products, the Capital One and PayPal's MasterCard branded decoupled debit products provide a more consumer-centric approach to the concept with broader merchant acceptance. In addition, Capital One adds higher than usual rewards for a debit card program.

Pay By Touch Blog Daily Headline News for Oct 30th

Tuesday, October 30, 2007

A Small Backgrounder and a GreenSheet Subscription to boot...

Yesterday I featured Digital Transaction News as a prominent Payments Industry Trade Magazine, I again encourage you to subscribe if you haven't. Today, I'm featuring The Green Sheet...

The Green Sheet has covered Pay By Touch since it's inception (although not as closely as your's truly) and is one of the publications where PBT's Payments Solutions division advertises regularly. (see advertisement on the right)

A Backgrounder on Your's Truly

The Green Sheet also covered, way back in Oct of 2002, (god, I can't believe it's five years already), a product called P.A.I.D, which was an acronym I came up with which stood for: Payment Authorized Instantly Debited. It was the nation's first company to offer a real time check debit program, as our company was the first one allowed to sign on with SafeCheck, a division of SVPCo, which developed it. I simply re-branded it as P.A.I.D. in order to gain a competitive advantage over the slew of other processors/acquirers that would jump on board the SafeCheck bandwagon in the future. After all, first to market, may give you positioning, but branding is for cash cows...

P.A.I.D took a paper check and converted it into a one-time Debit Transaction via the ATM Debit networks. Thus, if someone wrote a check for $100 and the merchant used P.A.I.D. the funds were verified via the debit network, and immediately set aside. This was important because, without it, a consumer (assuming they had $150 in their checking account) could write a check for $100, then go next door and use their debit card, for a $52 purchase. Even though the debit card transaction took place after writing the check, the check would bounce if the merchant didn't have the Payment (Authorized and Instantly Debited).

On the other hand, using the same scenario, if the merchant accepted the check under the P.A.I.D system, when the consumer went next door and tried to use his debit card for the $52 purchase, it would have been declined on the basis of insufficient funds.

Thus, it was as simple a marketing platform as one could possibly imagine...if I remember correctly, the slogan I came up with was something along the line of: Get P.A.I.D.

If you're at all interested, you can take a look at the original P.A.I.D website via "The WayBack Machine" here. Yes, there is a wayback machine, and it's pretty cool. Once at the wayback machine website, you will be able to check out all the links to find out more about both P.A.I.D. and...

CheckElect which were the first two products Solidus started out with before Indivos shareholders voted to merge with Solidus and focused all their attention on Pay By Touch (and rightfully so), I sometimes wish they would have stayed a little more focused on my check processing companies as BioPay did with their PayCheck Secure product. I handed them the foundation to develop it in house. Think of how much money PBT could have saved if they didn't have to essentially buy a biometric check processing company for $82 million. (because that's all BioPay was, albeit a good one) Instead, they could have developed their own in-house biometric check processing program with good starting points in P.A.I.D and CheckElect.

Eyes Wide Shut?

More importantly, they wouldn't have left the biometric check cashing niche wide open for BioPay to develop and gain a competitive marketing advantage on the check processing side, which is why they had to acquire them. I'll bet that Mr. Robinson is real busy these days enjoying his yacht...I wonder if he called that P.A.I.D? (very well)

Any who, I was told that the lack of interest in developing CheckElect or P.A.I.D was the doing's of one Craig Ramsey. But who knows? In fairness, P.A.I.D was based on SVPCo's SafeCheck program which was subsequently sold to Visa and became Visa POS Check, but nonetheless, Pay By Touch was and is well versed in ACH payments, and being a strategic partner with Discover, who owned the Pulse Network, they could certainly have reinvented P.A.I.D in house, using their expertise and connections.

Wow, is that the first thing I've ever said or posted that may be construed as criticism about Pay By Touch? It isn't, (criticism) but then again, it's not Monday morning quarterbacking either as I let them know way back then that check processing was a lucrative segment for payments and biometrics. can also browse through Solidus Networks old site and, in addition, read their Press Release on P.A.I.D here:

Editor's Note: That backgrounder is for the "more than a few" people who have e-mailed me and asked either who I am, or what's my background, what's with the cloak of anonymity or, and I'm quoting one here: "What's the impetus behind your being a Pay By Touch evangelist"? Wow...I've been called a lot of things in my day, but that was the first time I have ever been called evangelical. That one made me chuckle...anyway, continuing on...

The Green Sheet has an Advisory Board made up of some pretty heavy hitters in the payments industry including Russ Goebel, from Pay By Touch Payment Solutions:

Russ Goebel, Pay By Touch
Vice President of Sales


Bio: Russ J. Goebel is Vice President of Sales for Pay By Touch Payment Solutions and has over 13 years of electronic payment processing experience. He has held senior level management positions with Retriever Payment Systems, Heartland Payment Systems and First Data Corp. Goebel was a founding Advisory Board member and has completed the NACHA Payment Institute for Professionals.

So, I highly recommend a subscription to this publication. To subscribe to the Green Sheet, either electronically, or the actual paper magazine at no cost to you, simply Click Here

Here is a list of stories run by The Green Sheet on Pay By Touch over the years and their links. Note, if you haven't yet visited the Oct 28th article, that it has Solidus Networks old address at Spear Tower as I was already planning on placing P.A.I.D as one of Solidus' first product offerings.

The Green Sheet Introduces ATMDirect under New Products

The Green Sheet 2.0 : GS Online
October 27, 2007 • Issue 07:10:02

PIN protection for online purchases
Product: PIN Debit Service
Company: ATMDirect

In an age of data breaches and identity theft, account security is at a premium for e-merchants and consumers alike.

ATM Direct's PIN Debit Service is for Internet retailers and consumers who desire an extra level of protection and security for online purchasing.

The PIN Debit Service is patent-pending, software-only technology, but it works like a debit card reader at your local supermarket. After you key in your card number, the e-merchant's site prompts you to download the PIN Debit Service software to your computer, just like you would anti-virus software off of the Internet. It takes only seconds.

Then, a PIN pad screen pops open where you input your private, four digit PIN number using your mouse. That information is then routed through ATM Direct's secure data center and authenticated directly with the consumer's bank, bypassing the merchant's system. Your PIN number, therefore, is never exposed. Rather, it is transmitted through a secure network protected by industry leading security software technologies and protections, where it can't be easily logged or hacked. No additional hardware is needed for the service, and it does not route consumers to a new window or Web page.

Since the payments are processed across electronic funds transfer networks (just like PIN debit transactions in the brick-and-mortar world) the service enables networks, banks and card issuers that already accept PIN debit to accept Internet PIN debit transactions with little or no changes to their infrastructure.

Fraud costs the U.S. economy billions every year. And, in a tight economy, consumers are more apt to use their debit cards for online purchases than their credit cards. As a consequence, the use of debit cards on the Internet continues to grow, and now reportedly outstrips the use of credit cards online. But consumer fears over fraud and identity theft have dampened that growth. With PIN Debit Service, ATM Direct hopes to quell that fear and allow consumers to feel more secure about online shopping.

Robert Ziegler, General Manager for Pay By Touch-owned ATM Direct, said, "Consumers recognize PIN debit as a very secure form of payment, and the online PIN debit experience is the same. ... It's fast, easy and can help lower the risk of shopping cart abandonment." Inc., a leading e-commerce distribution company, has adopted the ATM Direct service to allow shoppers use of their debit cards with the additional protection of PIN security to safely buy goods online.

Contact ATM Direct at: 214-596-0707
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Monday, October 29, 2007

Get Digital Transaction News from Boland Hill Media Free!

Want to Keep Up on the Payments Industry?

There are a few good Payments Related Magazines that I subscribe to. Over the course of the next couple days, I will provide information on these trade magazines and how to subscribe.

Besides providing good payments news, there's other good news!

They are free to qualified payments professionals!

Just Click the "Subscribe for Free" link below and it will take you to their Free Subscription Form. Digital Transaction News comes HIGHLY recommended. I have subscribed since it's inaugural issue back in January 2004.

Subscribe for Free!

Digital Transaction News Website:

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About Us

Professionals Committed to Professional Quality

The publisher behind Digital Transactions, Digital Transactions News, and is Boland Hill Media, LLC. Formed in 2003 as a partnership between two veteran publishing executives, Boland Hill Media is a Chicago-based multi-media publisher serving the informational and analytical needs of markets undergoing fundamental transformation brought on by shifts in technology and consumer behavior.

Our central tenet is that at a time of such sweeping and often confusing change business executives more than ever require reliable facts and incisive analysis to set plans for new products and markets, set pricing, anticipate regulatory complications, and formulate competitive strategies. Our central aim is to be the primary provider of such news and analysis. Though we are deeply concerned with technology and its effects, we speak to the business executive and his day-to-day strategic concerns. That is, we are publishers of business publications, not technology magazines.

We are uncompromising in our commitment to quality, from the content of our publications to our design and presentation to our circulation. For example, most of our articles are researched and written by professional journalists with expertise in the field, and all of them are edited by seasoned pros before they ever reach the printer or the Web. Boland Hill Media is and will always remain committed to its high standards. Only in this way can it guarantee that it will always serve the interests of its readers and advertisers as a single community.


"The GreenSheet" which has been a staple publication for the payments industry since the mid 1990's. I've been a subscriber since 1997 and they covered the launch of P.A.I.D. (Payment Authorized, Instantly Debited) my real-time electronic check program back in 2002 which was subsequently sold to Pay By Touch.

You may subscribe either electronically or receive the actual magazine (published weekly) at no cost. For those who don't already receive it, you're missing a great publication. I'll point you to the subscription form tomorrow.

Their current issue has an article on Pay By Touch's Internet PIN Debit Program which is offered through ATM Direct. I'll post that article on the Pay By Touch Blog tomorrow as well in a separate post.

Have a great day and enjoy your subscription to Digital Transaction News!

Pay By Touch Blog Daily Payments Headlines for October 29th

A collection of news from around the Payment's Industry:

From Digital Transaction News

Here are the latest stories from Digital Transactions

It's Official: Synovus Will Spin off Processor TSYS in $600 Million Deal
Capping months of planning, bank-holding company Synovus Financial Corp. confirmed Thursday afternoon that it would spin off its entire 80.8% interest in payment card processor Total System Services...

Upon Further Review, Accounts Exposed in TJX Breach Double
Sources reached by Digital Transactions News aren’t surprised at the news that the number of credit and debit card accounts affected in the TJX Cos. breach has doubled, as disclosed by court filings...

Phishing Takes a Break As Attacks, Hosting Sites Slip in July
The crime of phishing entered midsummer doldrums, offering some relief to financial institutions, merchants, and other organizations engaged in e-commerce, according to the latest report from the...

With a Grip on Costs, TSYS Continues Its Post-BofA Recovery
Bolstered by cost controls and its growing international business, payment processor Total System Services Inc. (TSYS) on Monday reported profits rose nearly 27% on a revenue increase of not quite...

By Arming Consumers, a Startup Hopes to Cut Down on ID Fraud

In a sign of how the problem of identity fraud is spawning new businesses, a La Jolla, Calif.-based startup announced on Tuesday a free service allowing consumers to determine which pieces of junk...

Eye on Earnings: Google Checkout Adds More Merchants
Google Inc. gave a progress report about its Google Checkout payment services launched in mid-2006 and processors and banks heavily involved in the payments business reported third-quarter earnings...

Third Time Could Be a Charm for BB&T in Mobile Banking
BB&T Corp. this week introduced a new mobile-banking service in which the Southeastern regional bank leaves little to chance. The bank will offer consumers three user interfaces for two-way...

Banks Begin to Use SVPCO to Handle Check Images for Client Banks

Some of the big banks that connect to the SVPCO Image Payments Network are starting to use the system to send and clear items electronically for other banks they serve in a move that could increase...

PayPal’s Strategy Bears Fruit As off-eBay Ratio Steadily Rises

PayPal Inc.’s efforts to lessen its dependence on transaction traffic supplied by the online auctions run by parent eBay Inc. are paying off. Some 44% of the $12.2 billion the San Jose, Calif.-based...

Sunday, October 28, 2007

What is a Merchant Acquirer?

The Merchant-Acquiring Side of the Payment Card Industry: Structure, Operations, and Challenges - Ann Kjos - October 2007

Editors Note:
On January 19, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia sponsored a workshop led by Marc Abbey, managing partner at First Annapolis Consulting, to discuss the merchant-acquiring side of the payment cards industry. Abbey described the often overlooked acquiring industry as a dynamic growth business that is an integral part of the payment cards industry. He outlined several factors that have affected the evolution of the industry and described the current state of industry dynamics in terms of growth, competition, and business economics. In addition, Abbey discussed two recent developments: the emergence of data security standards and the new public structure of payment networks, which have drawn the focus of lawmakers, policymakers, and consumers to the merchant-acquiring business.

Pay By Touch is both a Merchant Acquirer, and a Processor for over 150,000 businesses, and currently recruiting experienced Independent Sales Organizations, so I thought I'd cover some of the background from the report: (As always, click any picture to enlarge)

Background on the Business of Merchant Acquiring

A: Definition of a Merchant Acquirer

The merchant-acquiring function may best be understood in the context of card use in a typical retail purchase transaction. As the diagram (chart 1) below illustrates, there are several stages in the transaction flow involving cardholders and their banks on the one side, merchants and their banks on the other, and a payment network in the middle that coordinates the flow of information and money underlying the transaction. There are many relationships within the payment card industry. The merchant services industry is shaped by the relationships between merchants and acquirers.

The various activities associated with merchant services (highlighted in Chart 1, and described later) can generally be thought of as the merchant-acquiring function. But who is the merchant acquirer?

For bank-centered payment networks such as Visa and MasterCard, the merchant acquirer is defined as the member financial institution responsible for its merchant-customers’ transactions with the network (the merchant-acquiring bank in Chart 1). In practice, member financial institutions often contract with third parties to perform any number of the functions associated with merchant-acquiring services.

In some cases, the extensive scope of merchant-acquiring services provided by these specialized third-party firms has led these companies to be commonly identified as merchant acquirers. Irrespective of name, it is important to note that it is the network member financial institution that is ultimately responsible for the underlying transactions with its direct or indirect merchant-customers.

In addition to Visa and MasterCard, other network structures involve other acquiring models. Most significant among these are American Express and Discover. Unlike Visa and MasterCard, these two card networks are not based on a bank-member structure but, rather, operate as independent entities. As such, they maintain the contract relationship with cardholders as “issuers” and similar direct relationships with the merchant that accepts their cards as “acquirers.” In a sense, the generally independent functions of issuers, acquirers, and networks that exist in the Visa/MasterCard models are collapsed into one entity in the cases of Discover and American Express.

Although Discover, American Express, and other networks play significant roles in the broader payment cards industry, the merchant-acquiring business is more generally associated with Visa and MasterCard transactions2 (commonly known as bankcard transactions), and this part of the payment cards business is the focus of this paper.

B. Merchant-Acquiring Services

In Chart 1 and in the earlier discussion about participants in the payment cards transaction flow, the general term merchant services was used to describe the activities undertaken by merchant acquirers. In essence, these activities may be seen as the services rendered by the acquirer to enable merchants to accept their customers’ payment cards at the point of sale. In support of the transaction flow, merchant acquirers generally perform four key functions: (1) signing up and underwriting merchants to accept network-branded cards, (2) providing the means to authorize valid card transactions at client merchant locations (3) facilitating the clearing and settlement of the transactions through the payment network, and (4) providing other relevant information services, such as sending out statements.

Signing up and Underwriting Merchants: Signing up merchants to accept card-based payments is a key marketing function of a merchant acquirer. This starts with soliciting merchants to accept the network-branded payment cards. The next step is the underwriting process, which ensures that the merchant meets the network requirements for financial stability and other conditions. This is an important step, since the merchant acquirer is ultimately responsible for its customers’ transactions with the network.

Very often, the merchant acquirer or its agent may also assist the merchant in obtaining necessary point-of-sale equipment and provide other relevant services. These and other functions are documented in a contract, called the merchant agreement.

Authorization and Capture: Operationally, a critical function of the acquirer is facilitating the authorization for purchase transactions. From a merchant’s perspective, authorization means that, barring future disputes, payment is guaranteed for authorized purchases. When a payment card is swiped at the merchant’s terminal, a request for authorization, along with the cardholder’s information and the transaction amount, is transmitted to the merchant acquirer. The merchant acquirer then forwards the request through the network, which, in turn, queries the cardholder’s issuing bank. The cardholder’s bank either approves or rejects the transaction based on credit or funds availability.If the transaction is approved, the issuing bank confirms the transaction with an authorization code, and the amount of the authorization is set aside from the available credit or available funds in the cardholder’s account. The authorization code is sent through the network from the issuing bank to the merchant-acquiring bank and then on to the merchant’s terminal. The authorization process does not result in an actual collection of funds at that time, but rather, it confirms that the issuing bank authorizes the transaction and agrees to a future settlement with the acquiring bank and its merchant customer.

Once the transaction is authorized, the sales process at the merchant location proceeds. The next step involves capturing the sales transaction information, which is separate from the authorization data. Typically, merchants capture their daily transaction details and either group all of the transactions together for transmission to the acquirer at the end of the day or, in the case of large merchants, process the transaction on a real-time basis. In either case, the transaction is confirmed with the cardholder, typically with a paper receipt.

Clearing and Settlement: The process of collecting the funds from the issuing bank and reimbursing the merchant is known as clearing and settlement. This process begins once the merchant submits transaction information, generally at the end of the day, to its merchant acquirer.

The acquirer then transmits the transaction data to the appropriate payment network, which, in turn, directs the transaction to the respective card-issuing banks. The issuing banks charge their customers’ card account and remit funds through the network to the acquiring bank, less the issuing banks’ fees. The process is completed when the acquiring bank credits its merchant customer’s account, net of fees paid to the issuer, the payment network, and the acquirer. Typically, merchant accounts are funded between 24 and 72 hours after the purchase transaction.

Statements and Information Services: Compiling and reporting on its merchant customers’ transaction data are an important service provided by acquirers. The extent to which this is done and the degree of integration into merchants’ accounting systems vary and can be a source of competitive advantage for acquiring entities. In recent years, the fee structures of networks and issuing banks have become increasingly complex, and most major acquirers now also offer a range of analytical services to assist merchants in better understanding and managing their payment card costs.

C. Industry Participants Within Merchant Acquiring

As will be described in more detail later, the bankcard industry has gone through significant structural change since its inception in the 1960s. At that time, both issuing and acquiring functions were generally conducted by a single bank servicing its cardholders and merchant customers located in a common geographic market. Over time, the industry has seen substantial change as the business of banking and retailing expanded well beyond local geographies. Driven in large part by these market factors and concurrent advances in technology, the payment cards industry today is dominated by large scale, specialized entities. Consequently, the issuing and acquiring functions historically conducted within a singe bank are now more generally seen in separate institutions, and various nonbank partners play important supporting roles, especially on the acquiring side.

In today’s market, various combinations of business structures are used to carry out the functions of merchant acquiring. At one end are acquiring banks, such as Fifth Third, that provide most of the relevant merchant services directly to their merchant-customers. In other cases, banks and large nonbank acquirers have formed jointly owned firms.

One notable example is Paymentech, a joint venture between JPMorganChase and First Data Corporation. Under this arrangement, JPMorganChase serves as the banking sponsor into the payment networks. Heartland Payment Systems is an example of a third model. Under contract with a sponsoring financial institution, this publicly traded company provides virtually all market services for its merchant-customers, including access to the Visa and MasterCard networks.

Supporting all of these models are a number of specialized service and transaction processing companies that provide everything from sales and merchant servicing, including training and technical assistance, to purchase transaction processing, terminal support, encryption servicing, and statement processing. While many of these service providers are common to the payment cards industry, one third-party entity is unique to the acquiring industry. These are the independent sales organizations (ISOs), which specialize in signing up new merchants for payment card acceptance and managing merchant relationships. Pay By Touch currently has dozens of Independent Sales Organizations and is recruiting more and more every day.

Note that despite the sometimes complex chain of service providers, they are always linked by contracts to the network member bank and subject to network-defined registration requirements designed to ensure safe and sound practices.

For the complete report from The Federal Reserve Bank of Philadelphia, click here.

Thursday, October 25, 2007

Pay By Touch Blog Headline News for October 24

Headline News - October 24, 2007

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